SMEs turn to investment to drive growth and navigate headwinds

Guy Callaghan, Chief Executive Officer at Banjo Loans

Australia’s SMEs are increasingly seeking alternative funding that doesn’t tie up their personal assets, as they drive growth while navigating ongoing supply chain and recruitment mishaps. The latest annual SME Compass Report by fintech SME lender Banjo Loans, found SMBs have a big appetite for borrowing to fund growth, but they struggle to get their hands on it.

When they do, it powers exponential expansion. The study found that 30% of respondents exceeded their revenue target in the past 12 months, up from 25% the previous year.

Key areas of investment were:

  • 71% invested in new technology
  • 67% purchased new assets
  • 63% increased headcount

What were the frustrations for SMEs seeking funding?

Banjo Loans CEO Guy Callaghan said small business is back on track and powering Australia but needs better funding options to continue to grow and navigate obstacles like supply chain interruptions and recruitment drought. With 62% of businesses facing challenges securing funding, the slow pace of big bank processes is cited as the main frustration (23%).

“SMEs are coming out of two years of the pandemic with an eagerness to invest in their business. Firms have acquisitions in their sights, yet many are frustrated by the traditional borrowing process, and not fully informed about the alternatives available to them,” he said.

“With 40% of SMEs still turning to major banks as their first funding option, this suggests many are yet to understand there are more efficient alternatives, that won’t tie up assets.”

Banjo Loans works with thousands of SMEs, providing unsecured loans to fund investment, with its fintech model enabling lending decisions to be handed down in as little as 48 hours.

“SMEs tell us traditional banks just take far too long, and the opportunity cost of not being able to get funding in time can restrict growth. This is why we see so many respondents (20%) saying they end up drawing investment from their own personal finances,” he said.

A further 33% will leverage funding from bank loans, while 17% will use credit facilities, like overdrafts and credit cards. Secured business loans and term loans are the most common.

“What we also see in the study is a desire to move away from secured loans, with women business owners much less likely to offer up personal assets as security than men,” he said.

Growth through acquisition is on the cards for 47% of SMEs – up from 42% in 2021. More SMEs are using acquisitions to add value to customers (45%) than last year (33%).

Supply chain issue – mostly delays in shipping – impacted 44% of small to medium sized enterprises (SMEs) over the past 12 months, with businesses now bringing forward stock in response. One in three are struggling with recruitment while more than 60% looking to hire.

“Funding will play a role in helping small business navigate these headwinds. With rising interest rates, debt that can be supplied quickly so that businesses can leverage the growth it powers to pay it down faster, that’s a much healthier picture,” Callaghan further commented.

What were the other findings of the survey?

Other key findings included:

  1. moving into 2022, 55% of small to medium enterprises (SMEs) are achieving or exceeding revenue targets, up from 45% the previous year
  2. The greatest barriers to growth were:
  • access to funding and insufficient cashflow (40%)
  • economic climate (33% down from 37% last year)
  • recruitment (28%)

3. 69% expect revenue to increase over the next 12 months and they’ll do this by:

  •  improving products (77%, up from 67% previous year),
  • investing in technology (73%, up from 62%)
  • marketing (71% up from 62%).

4. In the next 12 months, 63% of SMEs intend to leverage funding to drive growth. Many will seek bank loans (33%), some will use founders’ cash (20%), others credit (17%).

  • Half of those will be tapping founders’ personal savings (27% taking out a mortgage against a personal property, and 28% from other personal investment!)

To download a copy of the report, see: Banjo’s SME Compass Report 2022